Financial aid is any type of assistance used to pay college costs that is based on financial need.
The U.S. Department of Education's Federal Student Aid (FSA) programs are the largest source of student aid in America. These programs provide more than $80 billion a year in grants, loans and work-study assistance. Learn more about FSA and how to apply for this aid at www.federalstudentaid.ed.gov.
Often the first step in seeking financial aid for higher education is filling out the Free Application for Federal Student Aid (FAFSA). Fill out the FAFSA online at www.fafsa.ed.gov.
The National Association of Student Financial Aid Administrators offers a range of resources to help students and parents navigate the college aid process. For information, visit their Web site at www.nasfaa.org.
Grants and Scholarships - Also called gift aid, grants don't have to be repaid and you don't need to work to earn them. Grant aid comes from federal and state governments and from individual colleges. Scholarships are usually awarded based on merit. Click on these links to find out if you're eligible for a Federal Pell Grant or Academic Competitiveness Grant. To search for scholarships, visit www.fastweb.com.
Work - Student employment and work-study aid helps students pay for education costs such as books, supplies and personal expenses. Work-study is a federal program that provides students with part-time employment to help meet their financial needs and give them work experience.
Loans - Most financial aid (54%) comes in the form of loans to students or parents, aid that must be repaid. Most loans that are awarded based on financial need are low-interest loans sponsored by the federal government. These loans are subsidized by the government so no interest accrues until you begin repayment after you graduate.
Federal PLUS Loans
The PLUS Loan program is the largest source of parent loans. Parents can borrow up to the full cost of attendance minus any aid received, and repayment starts 60 days after money is paid to college.
Private Parent Loans
A number of lenders and other financial institutions offer private education loans for parents. These loans usually carry a higher interest rate than PLUS Loans.
A small number of colleges offer their own parent loans, usually at a better rate than PLUS. Check each college's aid materials to see if such loans are available.
Perkins Loans are need-based loans awarded by the financial aid office to students with the highest need. The interest rate is very low - 5 percent - and you don't make any loan payments while in school.
Subsidized Stafford or Direct Loans
Subsidized Stafford Loans are need-based loans with interest rates in the 4-6 percent range. The federal government pays the yearly interest while you're in school. This is why they're called "subsidized" loans.
Unsubsidized Stafford or Direct Loans
Unsubsidized Stafford Loans aren't based on financial need and can be used to help pay the family share of costs. You're responsible for paying interest on the loan while in school. You may choose to capitalize the interest. The advantage of doing this is that no interest payments are required. The disadvantage is that the interest is added to the loan, meaning that you will repay more money to the lender.
Grad PLUS Loans
This is a student loan for graduate students sponsored by the federal government that is unrelated to need. Generally, students can borrow Grad PLUS loans up to the total cost of education, minus any aid received. The advantage of this loan is that it allows for greater borrowing capacity. However, we recommend that students consider lower-interest loans, such as the Subsidized Stafford or Unsubsidized loans prior to taking out a Grad PLUS loan.
Other Student Loan Options
A number of lenders and other financial institutions offer private education loans to students. These loans are not subsidized and usually carry a higher interest rate than federal need-based loans. The College Board private loan program is an example of a private education loan for students.
Some colleges have their own loan funds. Interest rates may be lower than federal student loans. Read the college's financial aid information.
Besides setting up scholarships, some private organizations and foundations have loan programs as well. Borrowing terms may be quite favorable. You can use Scholarship Search to find these.